Announcer:
4 Your Money is brought to you by NelsonCorp Wealth Management.
Brandy Auterson-Hurst:
It’s now time for 4 Your Money. We’re joined by David Nelson, CEO of NelsonCorp Wealth Management. Welcome back, David.
David Nelson:
Thank you, Brandy.
Brandy Auterson-Hurst:
So David, the stock market has been called expensive lately. What are you seeing in the data?
David Nelson:
Yeah, there’s a lot of different ways to measure as far as if the market is expensive or not. One of the most common ones that we see and one of our favorites is what would be referred to as the CAPE Shiller Index. And the chart that I brought along today, I think again is a really nice visual. What’s unique about the CAPE Shiller Index is it looks at 10 years in the rear view mirror, so it’s looking backwards. And what basically the goal is is to try to extrapolate as far as what might be happening going forward. When you have 10 really good years, historically, the next 10 years aren’t so hot. And so it’s really a wonderful tool as far as to be able to do that. But in periods of time like now, what we see is quite a difference as far as an evaluation gap that exists.
And this gap that exists is looking again at the 10 years. And if we look at that ten-year level, the number is pretty dramatic. It’s around 39. And so that’s very, very, if you just looked at that, very expensive as far as for the market. But if we look at the earnings, and it’s showing on the screen here as far as the difference in earnings as far as the past five years of $232 per share for the S&P versus the 10 years 167. So what it’s showing is that things have really accelerated recently as far as earnings, which again, probably is the reason that we’re seeing where we are as far as markets returns.
Brandy Auterson-Hurst:
All right, so what does this mean for the valuation picture?
David Nelson:
Context matters. Don’t just be misled by just looking at one number and drawing conclusions from that.
Brandy Auterson-Hurst:
All right, David, always some great tips. Thanks for joining us. If you missed any of our discussion, we’ll make it available for you on OurQuadCities.com.
Past performance is no guarantee of future results. Investing involves risk. Depending on the types of investments, there may be varying degrees of risk. Investors should be prepared to bear loss, including total loss of principal.
Indices mentioned are unmanaged and cannot be invested into directly.
This video includes a paid appearance.